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How the New Overtime Rule Expands Eligibility for Overtime Pay

Federal and state laws guarantee the right of most workers to receive overtime pay when they work more than 40 hours a week. The Fair Labor Standards Act (FLSA) sets a minimum requirement for overtime pay nationwide. It includes multiple exemptions from the overtime requirement, including one for individuals working in “a bona fide executive, administrative, or professional capacity.” Known as the “EAP exemption,” this provision excludes many salaried employees from overtime eligibility based, in part, on income above a threshold amount. The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) has increased the EAP threshold over the years to account for cost-of-living increases, but it has not done so for some time until now. A new overtime rule issued by the WHD in April 2024 raises the EAP threshold, expanding eligibility for overtime pay. The rule takes effect on July 1, 2024.

Who Is Entitled to Overtime Pay?

Section 7 of the FLSA states rather broadly that employers must pay employees time-and-a-half for work above 40 hours per week. This applies to all employees unless they fall under an exemption identified in § 13 of the statute.

What Is the EAP Exemption?

Section 13(a)(1) of the FLSA identifies the EAP exemption. The general rule is that the EAP exemption applies under the following circumstances:

  • The employee does not receive an hourly wage.
  • Their pay is above a threshold set by the WHD.
  • The employee’s job meets the WHD’s definition of “executive,” “professional,” or “administrative.”

Executive employees must receive a salary to fit the EAP exemption. Administrative or professional employees may receive pay on a salary or fee basis. The term “salary” is often used to refer to any type of pay received by employees who are subject to the EAP exemption.

What Is the Threshold Salary for the EAP Exemption?

The threshold salary for all three categories was $684 per week until July 1, 2024. The threshold is lower for non-federal employees in American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.

What Is an Executive Employee?

WHD regulations define an “employee employed in a bona fide executive capacity” as someone who:

  • Manages the organization that employs them or a subdivision of that organization;
  • Oversees the work of at least two other employees; and
  • Has the authority to hire or fire employees or can influence the organization’s employment decisions.

What Is an Administrative Employee?

An “employee employed in a bona fide administrative capacity,” according to the WHD, is one who:

  • Primarily performs “office or non-manual work” involving their employer’s operations or management; and
  • May use “discretion and independent judgment with respect to matters of significance” as a key part of their job.

What Is a Professional Employee?

To meet the WHD’s definition of an “employee employed in a bona fide professional capacity,” an individual’s job must require:

  • Advanced knowledge of a field that typically requires “a prolonged course of specialized intellectual instruction”; or
  • “[I]nvention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”

What Is the Highly Compensated Employee Exemption?

The highly compensated employee (HCE) exemption applies to employees who:

  • Have one or more job duties described in the WHD’s definitions of executive, administrative, or professional employees;
  • Receive income on a salary or fee basis in an amount equal to or greater than the EAP threshold; and
  • Receive total annual compensation equal to or greater than the HCE threshold set by the WHD.

The HCE threshold until July 1, 2024, was $107,432 per year.

What Is the Purpose of the New Overtime Rule?

In a blog post announcing the new overtime rule, the DOL notes that the WHD has not raised the EAP threshold in some time. The current EAP threshold of $684 per week equals an hourly rate of $17.10. According to MIT’s Living Wage Calculator, this is not enough for a single person with no children to live comfortably in many parts of the U.S.:

City  Living wage
Boise, Ada County, Idaho$22.72/hour  
Madison, Dane County, Wisconsin$21.62/hour  
Kansas City, Jackson County, Missouri$20.93/hour  
Knoxville, Knox County, Tennessee$20.85/hour  

The HCE threshold equals $51.65 per hour. This is more than the living wage anywhere in the U.S., but living wages are catching up. The most expensive county in the U.S. is reportedly Santa Cruz County, California, where a living wage for a single, childless person is $36.64 per hour.

How Will the New Overtime Rule Change the EAP Exemption?

The new overtime rule will increase the EAP and HCE exemptions by defined amounts twice. It will then require the WHD to update it based on current data every three years.

DateEAP thresholdHCE threshold (including a salary or fee that meets the EAP threshold in effect at the time)
July 1 to December 31, 2024$844 per week ($43,888 per year)$132,964 per year  
January 1, 2025 to June 30, 2027$1,128 per week ($58,656 per year)$151,164 per year
July 1, 2027 to June 30, 2030, and again every three yearsUpdates based on available data and methodologiesUpdates based on available data and methodologies

The impact of the new rule will be that more workers in executive, administrative and professional roles will be eligible to receive overtime pay. If you have any questions or would like additional information, please contact us.

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